Mining Weekly 51/’12: Freeport, Xstrata, & Bumi

Copper miner Freeport McMoran surprised the market by acquiring two American oil & gas companies for approx. $9bn, taking on a lot of target debt to make a total deal size of approx. $20bn, the second largest acquisition in the industry this year.

Freeport did not request shareholder approval for the diversifying acquisitions, leaving a large part of the shareholder base unhappy with the deal and the stock price dropping approx. 15%.

Xstrata’s $5.9bn Tampakan copper project in the Philippines is put on hold while waiting for government approvals: the federal government doesn’t want to give the go ahead before the mining law is reformed, and the local government is opposing the issuance of an environmental permit based on a ban on open pit mining.

The board of Bumi plc has indicated that it favors the Bakrie offer to buy out the assets of the Indonesian coal producer over Rothschilds offer to increase the stake in those assets. Bakrie’s offer implies that the shared ownership of assets by Bumi and Bakrie comes to an end.

The board also indicated that it does not intend to sell the stakes in Berau to Bakrie, which would mean the company does not completely revert to a cash shell.

Deloitte published its annual report with the top trends in the mining industry for the coming year: on top of the list is the continued high cost of doing business, which is forcing many companies to reconsider development projects (see Tampakan above). The full list of trends is:

Preparing for the M&A storm: Market indicators point to rising deal volumes

Governments eye the mining prize: Resource nationalism remains

Combating corruption: Miners are being held to higher standards

Climbing the social ladder: A new level of responsible behavior

Plugging the talent gap: Skills shortages still loom

Playing it safe: Using analytics to generate insights and improve safety outcomes

At the IT edge: Getting the most out of emerging – and existing – technologies

Xstrata’s decision to put the Tampakan project, one of the largest development projects in the copper industry, on hold fits two trends: the increasing importance of alignment with both federal and local governments in developing countries, especially around when governments and legislature are changing; and the hesitance to undertake any large investments in a time of rising costs and uncertainty around demand growth.